Organizational Control and Change chapter eleven

Learning Objectives Define organizational control and explain how it increases organizational effectiveness. Describe the four steps in the control process and the way it operates over time. Identify the main output controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees. Identify the main behavior controls, and discuss their advantages and disadvantages as means of coordinating and motivating employees. Discuss the relationship between organizational control and change, and explain why managing change is a vital management task

Organizational Control Managers monitor and regulate how efficiently and effectively an organization and its members are performing the activities necessary to achieve organizational goals Keeping an organization on track, anticipating events, changing the organization to respond to opportunities and threats Managers must monitor and evaluate: Is the firm efficiently converting inputs into outputs? Are units of inputs and outputs measured accurately? Is product quality improving? Is the firm’s quality competitive with other firms? Are employees responsive to customers? Are customers satisfied with the services offered? Are our managers innovative in outlook? Does the control system encourage risk-taking? 3

Control Systems Control Systems Formal, target-setting, monitoring, evaluation and feedback systems that provide managers with information about whether the organization’s strategy and structure are working efficiently and effectively. A good control system should: be flexible so managers can respond as needed. provide accurate information about the organization. provide information in a timely manner. 4

Three Types of Control Figure 11.1 Feed forward Controls Used to anticipate problems before they arise so that problems do not occur later during the conversion process Giving stringent product specifications to suppliers in advance IT can be used to keep in contact with suppliers and to monitor their progress Concurrent Controls Give managers immediate feedback on how efficiently inputs are being transformed into outputs Allows managers to correct problems as they arise Feedback Controls Used to provide information at the output stage about customers’ reactions to goods and services so that corrective action can be taken if necessary Figure 11.1 5

Control Systems and IT Feedforward control Control that allows managers to anticipate problems before they arise. Giving stringent product specifications to suppliers in advance

Example – University of Alabama Game-day The University of Alabama provides information for fans to be ready for football game day parking and events This is an example of feedforward control 7

Control Systems and IT Concurrent control Control that gives managers immediate feedback on how efficiently inputs are being transformed into outputs so managers can correct problems as they arise.

Control Systems and IT Feedback control Control that gives managers information about customers’ reactions to goods and services so corrective action can be taken if necessary.

Control Process Steps Figure 11.2

The Control Process Establish standards of performance, goals, or targets against which performance is to be evaluated. Managers at each organizational level need to set their own standards. 11

The Control Process Measure actual performance Managers can measure outputs resulting from worker behavior or they can measure the behavior themselves. The more non-routine the task, the harder it is to measure behavior or outputs 12

The Control Process Compare actual performance against chosen standards of performance Managers evaluate whether – and to what extent – performance deviates from the standards of performance chosen in step 1 13

The Control Process Evaluate result and initiate corrective action if the standard is not being achieved If managers decide that the level of performance is unacceptable, they must try to change the way work activities are performed to solve the problem

Three Organizational Control Systems Figure 11.3

Financial Measures of Performance Profit Ratios – measure how efficiently managers are using the organization’s resources to generate profits Return on Investment (ROI) – organization’s net income before taxes divided by its total assets most commonly used financial performance measure 16

Financial Measures of Performance Operating margin calculated by dividing a companies operating profit by sales revenue Provides managers with information about how efficiently an organization is utilizing its resources

Financial Measures of Performance Liquidity ratios measure how well managers have protected organizational resources to be able to meet short-term obligations Leverage ratios measure the degree to which managers use debt or equity to finance ongoing operations 18

Financial Measures of Performance Activity ratios Show how well managers are creating value from organizational assets Inventory turnover Days sales outstanding 19

Organization-Wide Goal Setting Organizational Goals Each division within the firm is given specific goals that must be met in order to attain overall organizational goals. Goals should be set appropriately so that managers are motivated to accomplish them Figure 11.4 20

Output Control Operating Budgets Blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently. Each division is evaluated on its own budgets for cost, revenue or profit. Managers are evaluated by how well they meet goals for controlling costs, generating revenues, or maximizing profits while staying within their budgets. 21

Effective Output Control Objective financial measures Challenging goals and performance standards Appropriate operating budgets

Problems with Output Control Managers must create output standards that motivate at all levels Should not cause managers to behave in inappropriate ways to achieve organizational goals 23

Behavior Control Direct supervision Managers who actively monitor and observe the behavior of their subordinates Teach subordinates appropriate behaviors Intervene to take corrective action Most immediate and potent form of behavioral control Can be an effective way of motivating employees 24

Problems with Direct Supervision Very expensive because a manager can personally manage only a relatively small number of subordinates effectively Can demotivate subordinates if they feel that they are under such close scrutiny that they are not free to make their own decisions

Management by Objectives Management by Objectives (MBO) formal system of evaluating subordinates for their ability to achieve specific organizational goals or performance standards and to meet operating budgets 26

Management by Objectives Specific goals and objectives are established at each level of the organization Managers and their subordinates together determine the subordinates’ goals Managers and their subordinates periodically review the subordinates’ progress toward meeting goals

Bureaucratic Control Bureaucratic Control Control through a system of rules and standard operating procedures (SOPs) that shapes and regulates the behavior of divisions, functions, and individuals. 28

Problems with Bureaucratic Control Rules easier to make than discarding them, leading to bureaucratic “red tape” and slowing organizational reaction times to problems. People might become so used to automatically following rules that they stop thinking for themselves 29

Clan Control Clan Control The control exerted on individuals and groups in an organization by shared values, norms, standards of behavior, and expectations. 30

Organizational Change Movement of an organization away from its present state and toward some desired future state to increase its efficiency and effectiveness

Organizational Change Figure 11.5

Lewin’s Force-Field Theory of Change There are a wide variety of forces arising from the way an organization operates, from its structure, culture, and control systems that make organizations resistant to change To get an organization to change, managers must find a way to increase the forces for change, reduce resistance to change, or do both simultaneously Figure 11.6 33

Evolutionary and Revolutionary Change gradual, incremental, and narrowly focused constant attempt to improve, adapt, and adjust strategy and structure incrementally to accommodate changes in the environment

Evolutionary and Revolutionary Change Rapid, dramatic, and broadly focused Involves a bold attempt to quickly find ways to be effective Likely to result in a radical shift in ways of doing things, new goals, and a new structure for the organization

Steps in the Organizational Change Process Figure 11.7

Implementing the Change Top Down Change A fast, revolutionary approach to change in which top managers identify what needs to be changed and then move quickly to implement the changes throughout the organization.

Implementing the Change Bottom-up change A gradual or evolutionary approach to change in which managers at all levels work together to develop a detailed plan for change.

Evaluating the Change Benchmarking The process of comparing one company’s performance on specific dimensions with the performance of other, high-performing organizations.

Video Case: Using Facebook at Work Why might output control be preferable to behavior control for a manager whose employees use Facebook at work? Do you think employers should have policies to ban or limit using Facebook and similar Web sites purely for entertainment at work? Using Facebook at Work   Teaching Objective: To explore workplace use of social networking sites in terms of organizational control Summary: Facebook and other social networking sites are hugely popular not only with teens and those in their 20s but also by older people. Their popularity carries over to the workplace, distracts employees, causes lost productivity, and worse. While many employers tolerate Facebook use in the office as long as employees complete their work, others have banned its use. Questions: Why might output control be preferable to behavior control for a manager whose employees use Facebook at work? Output control evaluates performance rather than behavior and measures what is really important. A manager uses clear goals or targets that will best measure each employee’s efficiency, quality, innovation, and responsiveness to customers. If employees are achieving performance goals, the manager may wish to allow leeway for employees occasionally to use Facebook and similar sites. Behavior control through direct or strict supervision of all activities can demotivate subordinates. Banning Facebook or other Web sites could make employees feel that they are under such close scrutiny that they are not free to make their own decisions or trusted enough to get their work done. How could clan control affect employee use of Facebook and other social networking sites? Clan control takes advantage of the power of organizational culture to keep employees focused on what is best for the organization and how to use resources to create value. When employees are motivated to achieve goals, they would be more likely to limit their purely personal distractions like Facebook and other Web sites. A strong, positive culture would also make it less likely that employees would post negative messages about their employer on their Facebook pages. Do you think employers should have policies to ban or limit using Facebook and similar Web sites purely for entertainment at work? There may supporters for both sides of the issue. Some students will probably say that employees should be responsible for their time as long as they complete their work. Some students are likely to point out that banning Facebook would not eliminate time wasting and would cause resentment. A ban would be impossible to carry out unless the company’s server could prevent access to the site or could keep track of how much time individual employees use it. 40